| Sorry but I do disagree with few things you say. > A bank (or any entity) is allowed to lend as much money as they want to someone if they are actually lending money that they have. No they are not. There are supervisory limits on what a bank can lend (leverage ratios, capital adequacy rations etc.). > By definition fractional reserve is lending more currency than you have. No it is not, it is lending a fraction (less than 100%) of the money that has been deposited with you. I think the confusion comes from that in todays banking system there are two sorts of money that seem very similar - the base money (federal bank notes) and the bank money (loans/deposits of federal bank notes). The loans/deposits can also be used as money but crucially they are NOT the underlying money even if it is very easy to convert one to the other (depositing or withdrawing the base money). Example: I can buy something with the fact that Chase bank owes me bank notes (with the loan I made to it), by changing the ownership of that loan to the shop I want to buy something from. I have a bank card that makes that transfer very simple. The 10:1 ratio is a limit on bank money (loans / deposits) to base money (federal bank notes). Both sorts of money are denominated in dollars, but they are different and have different supply and demand. To recap, by keeping careful records of the loans / deposits, and making systems to easily transfer ownership of the loans and deposits, these loans end up also having characteristics of money - they can be used for transactions, for accounting etc. > You can't do that with Bitcoin by design You absolutely can. The loans/deposits form of bank money could work with bitcoin as the base money, and you could have the same rules around fractional reserve, capital adequacy rules, liquidity ratio rules etc. that the normal banking system has. |